As Honda Announces Swindon Plant Closure, Is Japan Turning its Back on Britain?

In 1984 Margaret Thatcher personally lobbied the chairman of Nissan Motor Company, Katsuji Kawamata, and the Japanese Prime Minister to come to a deal attracting a 6000+ job manufacturing plant in Sunderland and establishing the UK as the natural outpost in the EU for Japanese automotive companies. Toyota and Honda both followed with sites in Derbyshire (Burnaston) and Swindon respectively.

Uncertain Investment

35 years on and the future of car manufacturing in Britain by Japanese companies looks uncertain. Over 7000 people are employed in the aforementioned plants with another 7000 working for Nissan in Sunderland. The fruits of Honda’s £1.5 billion investment in Swindon will soon dry up with closure scheduled for 2021.

Honda builds 160,000 Civic models per year in Swindon; its only European factory. They have asserted that the closure is nothing to do with Brexit, but given the warnings sounded by a host of other manufacturers over Brexit, and the cancellations of Nissan’s latest investment in Sunderland, that is difficult to believe wholeheartedly.

Is Brexit to Blame?

The car industry is in the midst of a significant shift with sales of diesel cars falling in Europe as a result of tougher emissions regulations. Only around 3% of Honda Civics are actually sold in Europe. For Honda, the European market is simply too small to warrant a production line in Swindon. Jaguar Land Rover, whose range constitutes 90% diesel cars, is a prominent victim of a 37% slump in Diesel sales. The argument for cleaner diesel engines as the key to managing pollution and climate change has fallen on deaf ears as the push for electric and hybrid cars continues. Honda’s argument is that they have other plants better placed to cater for this market.

Nevertheless, Brexit is posing a huge obstacle to vehicle manufacturers in Britain. If we end up with a no-deal Brexit, then free trade with other European nations and another 55 countries that the EU has negotiated with will end. This means that cars built in Britain will be subjected to increased tariffs and subsequent production costs for the likes of Honda, Nissan and Toyota will increase.

So far, the department for international trade has negotiated a limited number of trade continuity agreements designed to ensure that frictionless trade continues after Brexit. Deals have been struck with countries including Chile, Switzerland and Israel, but this piecemeal selection of agreements won’t be enough to win over manufacturers concerned about trading after Brexit.

Furthermore, the EU and Japan have recently signed one of the largest and more comprehensive free trade agreements in history. Over the next ten years, tariffs on Japanese car exports to the EU will wind down towards zero. As such, there is little need for Japanese manufacturers to build their cars in the EU when they could just build them in Japan and export them under the same terms.

Whilst Honda’s decision may not be entirely Brexit related – or even have been preventable if Brexit had never happened – it is clear that their decision will have been made easier by the predicted effects of leaving European Union.